Tax year end date for individuals: exploring the potential for change

OTS analysis and evaluation to inform the debate about the implications of any potential change in the tax year end and its timing.

OTS analysis and evaluation to inform the debate about the implications of any potential..

The Office of Tax Simplification (OTS) analyses and evaluates the benefits, costs and wider implications of moving the tax year end date for individuals from 5 April to either 31 March or 31 December in their report entitled: ‘The UK tax year end date: exploring the potential for change’. The clear benefits of moving the date are weighed up against the high expected financial and opportunity costs of transition. The OTS highlights that decisions about a wider change to the tax year end rests with the Government and recommends that while a 5 April tax year is retained, a 31 March year end for unincorporated trading and property businesses should be treated as equivalent to a 5 April year end. This would also facilitate the move to Making Tax Digital for income tax, now due to be introduced in April 2024 (later for partnerships).

Outcome intended to inform debate

The outcome of this OTS review is intended to provide analysis and evaluation to inform the debate about the implications of any potential change in the tax year end and its timing.

Simon Johnson

Director, Private Client

KPMG in the UK

Email

Conclusions of review

The three key conclusions of this OTS review are as follows:

1)  Both new dates would be an improvement on the existing 5 April tax year end date

  • 31 March would be much more understandable, align with the UK’s financial year, and assist taxpayers who prepare business accounts or report income from investments.
  • 31 December would be the “natural, simplest and easiest approach for everyone to understand” and would bring the UK in line with many other countries and support the use of international data exchange for tax compliance purposes. The review also notes the benefits for internationally mobile employees and their employers.

2)  Financial and opportunity costs of a change would be considerable

The OTS notes that the current tax year end date of 5 April pervades existing public and private systems. There would be high costs for both the public and private sector making a change to the tax year end impossible in the short term, as well as the complications of the transitional tax rules that would be required. “The work involved to make the change would consume government resources and make it much harder to implement other changes [such as the Single Customer Account] at the same time.”

3)  A targeted approach for landlords and for calculating self-employment income

As a practical solution to simplify the tax affairs of the self-employed and landlords, which would also facilitate the introduction of Making Tax Digital for income tax self-assessment (MTD ITSA), the OTS recommends that accounts drawn up to 31 March should be treated as equivalent to 5 April. This is as suggested in HMRC’s Basis period reform consultation document (see below for a subsequent update on delayed timing of the introduction of these proposals). The OTS proposes that this change should be implemented ahead of mandatory quarterly reporting, which will be required under MTD ITSA from April 2024 (later for partnerships). A wider move of the tax year end date is not recommended in the short term.

What next?

As it makes decisions to move towards its aim of building “a tax system fit for the challenges and opportunities of the 21st century” (as stated in the Chancellor’s March 2020 Budget speech), the Government will be informed by and make decisions based on the analysis and evaluation in this OTS review.

The OTS has identified clear advantages of having a more intuitive and natural tax year end date, but because the current tax year end date is embedded across the public and private sectors significant transitional costs and other impacts would need careful and detailed advance planning. The OTS highlights the importance of not derailing existing programmes, such as the work towards the ‘Single Customer Account’. As the OTS states, “it is not too early to start some long-term planning if the Government were to consider taking this forward.”

For previous comments on MTD ITSA see these recent articles on LinkedIn: Where are we now? and What Might the Future Hold?

On 23 September 2021 the Government announced that the introduction of MTD ITSA will be pushed back one year to April 2024 (two years to April 2025 for general partnerships). In addition, the controversial proposals for income tax basis period reform and earlier payment of tax will also be delayed and will now not come into effect before April 2024, with a transition year not coming into effect earlier than 2023. For further comments see our separate article on the implementation of MTD ITSA and basis period reform delay.